We are constantly being told that the woes of Britain’s housing market are all to do with a lack of supply. From Governments to house builders and everybody else in between, they’ve all bought into the idea that we’re not building enough houses. Prices have soared , making home ownership a lofty ambition for a growing number of young people. Not one to take things at face value, I believe Britain’s housing crisis is more about just supply and demand. In fact, there are similar parallels to Bitcoin.
What does Bitcoin have to do with house prices ?, you may ask. Both are fuelled by speculation with huge sums of money invested in supplies of bitcoins and London property. Both have seen tremendous growth in value becoming financialised assets that have delivered capital gains far in excess of people’s ability to earn income from work. Speculators are convinced they’ve bought a licence to print money-forever.
Since the mid 1990’s we’ve seen some buy-to-let investors build property empires off the back their first purchase- all on borrowed money. The speculation is fuelling the house price rises. The combination of mortgage credit, private capital and help from the bank of mum and dad are the driving factors. This is also supplemented by tax breaks and Government subsidies, causing house prices to rise. Foreign investment, to the tune of around £100 billion has been invested in the London property market, fuelling price rises yet further.
There are cranes on London’s skyline as far as the eye can see, and yet, for all this activity , it hasn’t brought down house prices. House prices won’t fall until the tide of money flowing into the market lessens. Apart from any future interest rate rises, other mechanisms may be triggered. For example, by tightening mortgage credit, the Stamp Duty rises on second/investment properties and shrinking the pool of buy-to-let investors has already started to happen.
In the current marketplace, there are plenty of new homes being built in the Capital and whilst there’s been a fall in sales volumes since 2016, it hasn’t caused any significant fall in house prices.
House price growth in the 1980’s and 90’s made for a golden era in home ownership. Average values doubled once every 7 years, houses became cash cows, and everyone could upgrade on the cheap.
The key to make homes more affordable, is to restrict the flow of cash into expensive locations. Continuing to build without doing this , won’t see a correction in prices.
Looking at European housing markets, in Germany for example, they have a Property Speculation Tax. Punitive rates are levied on speculators with empty homes , incentivising them to invest their money elsewhere.
In Britain we have by far the most comprehensive property laws anywhere in the world and arguably, the most efficient accounting system. Britain has become a haven for Oligarchs and corrupt politicians to move often-fraudulent money out of their own countries. A tax on overseas transactions will help curb this sort of activity. These mobile flows of capital inflate the price of Britain’s fixed supply of land.
By engineering house price falls in a careful and planned way, will help the upcoming generation of first-time buyers and shrink the affordability gap. Affordability is the single biggest cause in the fall of homeownership compared to all previous generations.
Where there are winners, there will also be losers. Pensions don’t provide the security they used to, say a generation or so ago. The baby boomers , who are the wealthier homeowners, would see their retirement security eroding. Government needs to be pro-active in providing homeowners assets like secure Government bonds to give a steady source of income.
The other challenge is that Britain is a service sector economy that is largely driven by consumer spending, based upon rising house prices. Any fall in confidence and consumption will stifle economic growth.
The dependence on consumer spending, property speculation and high levels of debt leaves the economy vulnerable. This causes land values to rise considerably, when money gets funnelled into speculative property investment. This deprives the economy of capital and social infrastructure investment that will create fuller employment, a skilled workforce, boosting productivity and people’s wages.
Affordable housing are words we hear all too often when talk turns to the property market. Funnelling more money into the marketplace and building more private housing will not shrink the gap. Government needs to get its act together, adapting to a different economic model to have a housing market that is more accessible with long term sustainability.
If you’d like to know more about the property market or would be interested in working with me, I can advise you on a range of things; from how to maximise the income potential from property, where and what to buy. For more articles like this visit my blog https://www.ashmoreresidential.com/blog/ or if you fancy a chat 020 8366 9777 or drop me a line [email protected]